Pertamina, Japan in talks on Arun field

Pertamina, Japan in talks on Arun field

HONG KONG (Dow Jones): Indonesia's state-owned oil and gas
concern, Pertamina, is currently negotiating with Japanese buyers
over the possible extension of liquefied natural gas supply from
the Arun field.

However, Japanese buyers appear less than eager to extend the
contract, which expires in December 2004, and are discussing a
"much, much lower" volume than those under the current deal,
according to a Pertamina LNG official involved in the talks.

The extension of the contract is critical for Indonesia given
the industry's expected supply glut in coming years. In
particular, Indonesia depends heavily on the field, with its 14
trillion cubic feet in reserves representing 45 percent of total
production in Indonesia.

Currently, Tohoku Electric Power Co. imports about 3.01
million metric tons a year of LNG from the Arun field, while
Tokyo Electric Power Co. takes 510,000 tons a year, The imports
are arranged by Japanese trading giant Mitsubishi Corp.

Although the Pertamina official declined to provide further
details on the volumes under negotiation, he said that suppliers
were facing intense competition.

"Demand is very small, but there is a lot of available
production from all over the world," said the official. "As far
as Malaysia and the Middle East, there's a lot of LNG to be
offered and buyers may have some advantages in bringing the price
lower."

Although the Arun field is rapidly depleting, with the Arun
LNG plant slated to close in 2014, industry officials are
concerned that without an extension of the contract, Indonesia
could see Japan turn increasingly to Australia, which is
developing the huge Gorgon field. Partners in Gorgon include
units of Chevron Corp., Texaco, Mobil Corp. and the Royal
Dutch/Shell Group (RD).

"If Indonesia doesn't take this opportunity (to extend the
Arun contract), we will lose it to the Gorgon project and if that
happens we're going to be in trouble," said a Jakarta-based
industry source close to the deal.

An official at Tohoku Electric Power told Dow Jones that the
company has been considering the Arun extension as one of their
options for LNG procurement, but has yet to conclude anything. A
Tepco official said the company isn't under negotiation with
Pertamina to extend the Arun contract which is set to expire
December 2004.

"Since we are currently taking Malaysian LNG, and will start
procuring from Qatar in 1998, the extension of Indonesia's Arun
contract isn't necessarily appealing," the Tohoku Electric
official said.

The Arun LNG plant is owned 55 percent by Pertamina, 30
percent by Mobil Corp. (MOB) unit Mobil Oil Indonesia Inc., and
15 percent by Japan Indonesia LNG Co. Indonesia is the world's
largest LNG exporter, responsible for about 35 percent of world
LNG trade.